Does Obamacare cut Medicare spending?

The short answer is yes, by $500 billion over ten years. These cuts come in two ways. First, the Medicare payment to Medicare Advantage Plans has been reduced because Medicare was paying these plans about 114% of what it paid for standard-fee for- service Medicare. Since these plans are supposed to be more efficient than fee-for-service it’s hard to see why government would pay more for these plans which also generally offer a higher level of benefits. There are about ten million Medicare beneficiaries in the plans.

The other cuts, the great bulk of the cuts, come from reducing fees to hospitals and doctors. Before these cuts, Medicare already paid between 20% and 40% less than what is paid in the private health insurance market.

So what are the possible consequences of all this?

Medicare Advantage premiums will rise and benefits will be reduced to cope with the lower revenue thus driving people out of these plans. That is a longer term scenario; to date that has generally not occurred.

Cuts in fees may increase cost shifting by providers to the private sector. If they receive lower payment from Medicare they will seek higher payments elsewhere. To the extent this occurs, private health insurance premiums will increase accordingly.

Some providers may drop Medicare participation. This will allow doctors to charge patients up to 115% of the allowed Medicare fee.

The fee cuts will not be fully implemented or will be rescinded as has occurred many times in the past thereby removing one of the major funding sources for Obamacare benefit enhancements adding to Medicare’s woes and federal deficits

So, has Obamacare gutted Medicare as some people claim? Not exactly, but the claimed savings are tenuous at best and still unknown is the eventual impact on Medicare beneficiaries and on the cost of health care in the public sector.

However, nothing in Obamacare affects the Medicare Part B premium as is claimed in a popular e-mail and there are no direct cuts in Medicare benefits; the opposite is true. There is no “death panel” and the new Advisory Commission is prevented under the law from making recommendations that cut benefits or ration care.